Fiona Trust not applicable to Expert Determination

In Barclays Bank v Nylon Capital [2011]. B had invested £250 million in two hedge funds in the Cayman Islands. The funds were managed by N, which was a limited liability partnership. B was a member of the partnership. A partnership agreement set out how the profits were to be allocated. B withdrew its investment, and a dispute arose as to the allocation of profits. However, no formal allocation of profits had been made. B issued a claim for a ceratin declarations. The partnership agreement contained an expert determination clause. It stated that in the event of a dispute regarding profits, an affected party could refer the matter to an accountant for determination, including the determination of any dispute concerning the interpretation of the agreement. The reference could be made 30 days after allocation of profits. N argued that B’s claim should be stayed pending determination of the dispute by an expert under the agreement. B argued that the court should first determine the jurisdiction of the expert, and the expert had no jurisdiction because N had not yet formally allocated the profits.

Against that backgound the court determined the jurisdiction of the expert. The term “jurisdiction of the expert” was a convenient way of encapsulating the issue as to whether under the contract the expert had a mandate to enter into a determination of any part of the dispute between the parties. The extent, and limits, of his mandate was a different question.  Although, generally speaking, parties should adhere to the agreement which they had made, the approach to an expert determination clause should not be the same as the approach to an arbitration clause. Arbitration was usually an alternative to a court for the resolution of all the disputes between the parties. However, in contradistinction, expert determination clauses presupposed that the parties intended certain types of dispute to be resolved by expert determination and other types by the court. The rational of Fiona Trust v Privalov [2007] did not therefore apply.  It was neither just nor convenient to defer a decision until after the expert had determined whether he had jurisdiction,  Under the agreement 30 days had to elapse after allocation of profits before the dispute could be referred to the expert. That made it clear that the making of an allocation was a condition precedent to the appointment of an expert. The expert had no jurisdiction to determine any issues until there had been an allocation.

This seems a sensible approach.  the parties had agreed that the expert was to consider the allocation of profits but only after the profits had been allocated.  Without an allocation the expert had no jurisdiction.

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